Trade flows could be rerouted again as waiting times and costs at the Panama Canal are set to rise further
Panama Canal operator ACP is to cut daily auctioned transit slots this month because of falling water levels, tightening capacity further and adding to congestion that has already lifted Neopanamax auction costs to multi-year highs.
Under changes effective from 21 August for transit bookings from 4 September, ACP will offer nine daily slots through the larger Neopanamax locks that typical VLGCs use, down from the usual allocation of 10. This follows a lack of rainfall for the canal's fresh water lakes. Rainfall was 34pc below average in May-August and water inflows 44pc lower, ACP says. The operator warns that a severe 2026-27 El Nino could further reduce rainfall over the rest of its rainy season, which runs from May-December.
Reduced slot availability will increase competition for transits, potentially raising freight costs or prompting vessels to divert around the Cape of Good Hope. Argus assessed the Neopanamax auction price at $3.1mn on 27 August, its highest in recent years, before easing to $2.15mn on 1 September. One shipowner in late August paid $5.3mn for a northbound Neopanamax slot on 1 September. Waiting times for auctioned southbound Neopanamax transits had increased to 21 days by 25 August.
US propane and butane prices diverged sharply after the new restrictions were announced, as longer or costlier Asia-bound voyages weighed on an oversupplied US propane market while stronger gasoline blending demand supported butane. Mont Belvieu EPC butane prices moved to nearly a $147/t premium to equivalent propane values by 31 August — the widest premium for the heavier grade since 19 May.
US propane inventories remain about a third above the five-year average and climbed to a record high of 109.5mn bl (8.8mn t) during the week to 21 August, the latest data from the Energy Information Administration show. The market is accordingly weak, lagging crude benchmarks despite brisk exports to Asia. The prospect of further Panama Canal delays has added to bearish sentiment because it could make it harder for surplus US supply to clear into this key outlet.
The US propane market reaction was contrasted by gains on the Argus Far East Index (AFEI) for northeast Asian deliveries on the same day, as the canal restrictions heightened concerns of tighter supply and higher freight costs. The US-Asia paper arbitrage for September subsequently widened to $385/t by 28 August, although the October spread narrowed to $361.50/t on 1 September. But a strong arbitrage does not negate the logistical constraints. Higher transit costs, fewer auction slots and longer waiting times could still restrict Asia-bound shipments on the canal, pushing them to take longer voyages.
The canal disruptions could also steer more US LPG to northwest Europe, as exporters seek logistically quicker and simpler outlets. But US LPG arrivals to the region are already elevated, climbing to a nine-month high of 621,000t in August, one-third above the average of the previous five months, according to Kpler data.
Europe may be able to absorb some additional supply because North Sea maintenance is trimming regional output. But demand has strengthened only marginally since the summer lull, and northwest European propane pricing has largely moved in line with the broader energy market, indicating that the region remains well supplied.
